Starting a Business? A Crash Course in Contracts 101

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If you are planning to set up a company, you will need to draft certain documents, or have them prepared by a law firm knowledgeable in corporate law.

# 1  — Setting Up Your Company —

Start by setting up your company in the state where you live or Delaware. Many companies incorporate or form their business in Delaware because Delaware is business-friendly. In other words, they make the process easy and inexpensive. If you incorporate in Delaware but plan to operate in any other states, you will also need to qualify in those states.

The company’s founding members will need a contract between or among themselves. Therefore, the initial contract will be the agreement that you have with your business partner(s), board members, and/or officers. This document can be an Limited Liability Company (LLC) Operating Agreement, a Partnership Agreement, or the Articles of Incorporation and Bylaws.

The initial contracts will establish:

  •     Relationship of the parties,
  •     Duties and responsibilities of each party,
  •     How meetings will be conducted, and
  •     Procedures for amending the initial rules and parameters.

# 2 — Financing Contracts —

You can finance your business in a number of ways. You can acquire corporate debt by borrowing money or you can acquire corporate investment in exchange for equity, which means you borrow money and allow individuals or entities to have an owned interest in the company. Many times, a company will have both managing partners (the brainiacs of the company) and investment partners, who want to make a financial contribution but do not want to be involved in operations. Often, both staged financial and “talent-and-time” contributions are addressed with graded equity and a vesting schedule should be part of almost any negotiation.

Examples of financing contracts are:

  •     Investment agreements,
  •     Promissory notes,
  •     Stock agreements, and
  •     Convertible debt financing agreements.

# 3 — Employment Contracts —

Employment contracts are divided into two types:

  •     Employees
  •     Independent contractors

These two types of employees are very different and it’s important for an entrepreneur to understand those differences. Whether an employee is a full-time employee or an independent contractor they will have tax, employee benefits, and insurance repercussions.

#4 — Contracts Specific to Your Particular Business or Industry —

Tips for this category would depend upon the particular or specific industry. Examples of industry-specific contracts are:

  •     Vendor contracts
  •     Commercial Lease agreements
  •     Intellectual Property (IP) contracts
  •     IP Licensing contracts

If you have additional questions about setting up your business, or the contracts that an entrepreneur will need to get his business off the ground, please contact me anytime at AaronPierceLaw.com

Aaron Pierce
(212) 882-1752
299 Broadway, Suite 1405
New York, NY 10007
ahpierce@aaronpiercelaw.com
www.aaronpiercelaw.com

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